The principles of life insurance

Capitalization of the Value of a Human Life and In-
demnification of That Value. Recognizing the value of a
human life from both the family and the business standpoint
(the two being nearly always closely interrelated), it should
next be noted that life insurance constitutes the only safe
method of indemnification against the loss of that value
through death. Briefly stated, life insurance makes possible
the capitalization of that value. By furnishing this capitalized
value in the event of death, life insurance may be said to per-
petuate the earning capacity of the life for the benefit of those
dependent upon it. Through experience and toil the human
life may be constantly growing more valuable, the dependent
family in the meantime becoming more and more accustomed
to a higher standard of living, and suddenly this entire value
may be swept away by death. Unless some substitute some
sort of hedge can be found there will be nothing to take the
place of the economic value of the deceased. Life insurance
constitutes such a hedge and it should be the purpose of every
man who has assumed family obligations to take out such an
amount of insurance to capitalize himself to such an extent
that the principal if put out at the current rate of interest
will yield an income equivalent to from one-third to one-half of
his earning capacity during life. Nearly all other values are
being capitalized in this modern age, and it is entirely proper,
in fact essential, that the value of a human life should also be
capitalized.
This naturally brings up the question as to how much life-
insurance protection should be taken out for dependents.
While this is a practical question opinions differ greatly
and everyone must answer the question according to his
opportunities and obligations. One rule which has been fre-
quently advanced, and which assumes that there should be a
continuance to the family of at least one-half of the current
income earned by the insured at the time of death, is to the
effect that " A man's life insurance should be large enough,
when invested at the current rate of interest, to produce an
income half as large as he earned while living." Others try

to arrive at some rough answer to this question by ascertain-
ing the principal which ought to pass upon death to the fam-
ily of the insured in order to purchase an " income equal to
the insured's probable earnings should he survive." Assum-
ing that a $500 income is under consideration, the following
table will serve to indicate the present value, at 4 per cent,
interest, of such an income during the expectancy of life at
various ages, according to the American Experience table of
mortality. Thus, as the management of one company states :
" At age 30, a sum of $9,332, computed at 4 per cent, interest,
or of $8,187, computed at 5 per cent., would be required to
produce an income of $500 per annum for thirty-five years,
which is the life expectancy of a person aged 30, and an
insurance of $9,332, or of $8,187, according to the rate of
interest, would be required to indemnify his family fully for
the loss of $500 income which would be occasioned by his
death thirty-five years in advance of his expectancy." If an
income of $1,000 per annum were under consideration the
amount of insurance would be twice that-ondicated.


Related posts:
Family and personal uses of life insurance